No need to panic after all.

**d000hg** · 8 January 2009, 07:54

The glossy expensive magazine my stockbroker sent me had an article suggesting that printing money was a good option. Who knows what clue they have about such things, but just because some countries did it in a grossly over the top way doesn't mean judicious money printing will automatically lead to hyperinflation... post-war Germany and Zimbabwe were slightly extreme cases.

**BlasterBates** · 8 January 2009, 08:18

1) High house prices crash.

2) Printing money causes inflation.

It isn't different this time.

**DimPrawn** · 8 January 2009, 08:20

Can someone please explain what Quantitative Easing really means?

Is it physical printing of money, if so how do the government get it into the economy (drops of 1,000,000,000 x £50 notes from aircraft over Labour marginals?).

Or is it simply wiping their own debt clean and then the government go on a pointless spending exercise and give themselves huge pay rises?

Won't this destroy the pound and bankrupt the country?

**Scotchpie** · 8 January 2009, 08:23

Originally posted by DimPrawn View Post

Won't this destroy the pound and bankrupt the country?

Isn't that what Gordon Brown wants?

**d000hg** · 8 January 2009, 08:29

Originally posted by Scotchpie View Post

Isn't that what Gordon Brown wants?

Yes, of course it is.

**PM-Junkie** · 8 January 2009, 08:37

Originally posted by DimPrawn View Post

Can someone please explain what Quantitative Easing really means?

Is it physical printing of money, if so how do the government get it into the economy (drops of 1,000,000,000 x £50 notes from aircraft over Labour marginals?).

Or is it simply wiping their own debt clean and then the government go on a pointless spending exercise and give themselves huge pay rises?

Won't this destroy the pound and bankrupt the country?

Quantitative Easing involves printing money to buy securities to flood the financial markets with cash or liquidity. That increases the amount of currency in circulation which reduces the value of the currency and boosts inflation...and because there is more of something, its value goes down. By the flooding the market with liquidity, the aim would be to promote lending - the theory being that flooding the financial system with so much excess reserves and liquidity would force the banks to resume "normal lending". You may or may not be convinced by that - I'm certainly not.

As for the effect on currency - well, the Japanese tried it 8 years ago. In the first year of Quantitative Easing the Japanese Yen weakened against the US dollar by 18.5%, which is a textbook reaction to Quantitative Easing. The Nikkei also dropped 28 percent. Between 2002 and the end of 2004, $/Yen fell 22 percent as the Japanese economy began to stabilize. During that same time the Nikkei recovered 20 percent, but not before it fell another 20 percent. So absolutely yes, Quantitative Easing devalues a currency big time.

There's lots of debate about whether or not it turns around an economy....I am in the camp that thinks it doesn't. Most people agree that it does put a halt to deflation, and I'm not convinced that's the issue so I see no point in doing it.

**rootsnall** · 8 January 2009, 08:42

Originally posted by PM-Junkie View Post

There's lots of debate about whether or not it turns around an economy....I am in the camp that thinks it doesn't. Most people agree that it does put a halt to deflation, and I'm not convinced that's the issue so I see no point in doing it.

It didn't stop deflation in Japan.

Not 100% but I think Japan was a large net exporter when they tried it and didn't already owe the rest of the world a fortune.

They've no idea what will happen if we do it here. Even if it gets things going in time of for the next election you can bet it will be a big mess long term.

**PM-Junkie** · 8 January 2009, 08:48

Originally posted by rootsnall View Post

It didn't stop deflation in Japan.

Not necessarily true - the theory is that deflation would have been far worse had they not applied QE. Most people agree, but it is like most of these things, only a theory.

You may of course be right!

The joy of economics (if there is one!) is that you can often quote data that proves you're right. So everyone is right, nobody is wrong.....maybe that's one of the reasons we're in the position we're in?

**Purple Dalek** · 8 January 2009, 08:50

Originally posted by Gonzo View Post

The Treasury are now denying that they have got the printing presses on standby, see this article on the bbc today http://news.bbc.co.uk/1/hi/business/7817063.stm

So that will be alright then,

Actually it was mentioned first on this board, then appeared on Guido and that was commented on back here. So some of the original story has been lost by the time you've seen it I guess.

The thrust of the change to the law was that if they are printing more money they no longer have to tell you, and if they decide not to tell you it is against the law to tell anyone if you find out they are.

So they are probably printing money already, but no one can say it directly.

America has been printing for a while. I would suspect that the speed the UK gov were pushing the law through they've been at it too.

No need to panic after all.